Labour Market

Occupational licensing must be radically re-examined

Around one in five British workers now needs a licence from government to practise their chosen occupation. This proportion has doubled in the last fifteen years. A further fifth of workers are certified by government agencies: employers often ask for such certification from employees even though it is not a legal requirement.

These are not all doctors, nurses or lawyers: licensed occupations include social workers, chiropractors, art therapists, childminders, security guards and farriers. Typically licensed workers must possess particular qualifications, undergo specified training, adhere to codes of practice, engage in continuing professional development and pay annual fees to a government-endorsed regulator.

This is usually justified by the need to protect an uninformed public from harm caused by incompetent or unscrupulous practitioners. However regulation has increased at a time when consumer information has been expanding rapidly and there are new ways of ensuring quality and value for money through comparison sites and online ratings: twelve new occupations have been registered this century and a number of others are in the pipeline.

The rationale for government regulation, based on perceived market failures, has been shown in many cases to be unconvincing. Such regulation reduces competition, raises prices and excludes many competent people from entering occupations, often without significantly improving quality of delivery. In fields where rapid technological change promises to raise productivity and bring improved service and lower prices to consumers, rigid occupational licensing threatens to inhibit this process.

As economists including Adam Smith and Milton Friedman have argued, licensing often seems mainly to serve the interest of the members of the occupation. As the Professional Standards Authority for Health and Social Care has recently argued, regulation is often seen as a badge of professional status, rather than a system to be applied where risks justify its intervention. It is actively sought by occupational groups which wish to keep out competitors.

Even where a ‘public interest’ concern has been the proximate cause of the introduction of licensing, this is often the consequence of an over-reaction to particular events – such as the furore over phone hacking which led Theresa May, when Home Secretary, to require private investigators to be licensed even though rogue operators were already clearly in breach of the law. Producer interests have had a disproportionate influence on the regulatory process, leading to the creation of substantial ‘rents’ – pay in excess of that for other similarly skilled jobs where a licence is not required to work. This distorts the labour market and the distribution of earnings.

Because licensing makes it more difficult and expensive to enter occupations, groups who have problems financing long periods of training tend to be excluded, reducing the diversity of the occupational workforce. Older workers and labour market returners find it difficult to join a new career path. Social mobility is reduced. This has been a big concern in the United States, where the Obama White House issued a major report calling for a halt to a process which has seen barbers, flower arrangers, interior decorators and other exotics become protected groupings. Even the European Commission has become concerned about the implications of occupational regulation for competition and mobility within the EU. In early 2017 it put forward a proposal for a new Directive to bring in a ‘proportionality test’ for occupational licensing.

By setting very specific job requirements, occupational licensing discourages innovation and competition. Relaxing occupational requirements offers the opportunity for substantial productivity gains from the more effective use of the workforce.

We should resist further attempts to regulate. Where a new problem is perceived – for example there is one at the moment with the quality of nursing assistants – we should look to place much more emphasis on the responsibilities of employers rather than setting up yet another new regulatory body to vet individuals.

A comprehensive review of today’s occupational licensing should be undertaken. As most licensing is domestically generated, any continuing post-Brexit commitments to EU rules are largely irrelevant.

The need for licensing in so many areas should be radically re-examined. New technology is undermining the traditional arguments for exclusivity for professional practitioners. In medicine, artificial intelligence is achieving better diagnostic results in some areas than radiologists or GPs. Lawyers are using AI rather than juniors to speed search for precedents, and blockchain technology looks likely to replace the role of solicitors in conveyancing and other forms of property transfer.

Where some intervention is thought to be justified, we should look at the most appropriate form of regulation. In many cases it should be possible without safety or quality concerns to substitute simple registration for full licensing, and in many cases certification for registration. Moreover government certification can be replaced by private accreditation (long the case for accountants, for example).

More generally, we should recognise that free choice by consumers and experimentation by providers offers the best hope for productivity and real income gains. Occupational licensing is too often the result of government over-reach and lack of faith in, and understanding of, the way in which a free economy operates and a free society ought to allow individuals to make appropriate decisions for themselves – both as consumers of services and potential providers of these services.

Download Len’s latest report “Conspiracy Against The Public? Occupational regulation in the UK economy” for free here.

Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

1 thought on “Occupational licensing must be radically re-examined”

  1. Posted 30/12/2017 at 09:53 | Permalink

    Agreed sir and some excellent observations.

    There was one thing not mentioned, perhaps it is in your book… and that is just who has managed this phenomenon. In days of yore, closed shops were set up by the unions of various professions, such as doctors, lawyers, architects etc., but when factory and manual workers decided that they wanted similar “protections”, the government of the day, came down on them like a ton of bricks, and rightly so. Remember the miners strike?

    Now, as you succinctly point out, this pattern is being engendered by government, and frequently not in the interests of the customer, or the practitioner, but clearly as a form of government control.

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